The preceding sections of this chapter have aimed to give a broad picture of the objects of drawing up the so-called final accounts, and have indicated how a rationally organised accounting system can facilitate the preparation of final revenue accounts and Balance Sheets.

With the broad picture in mind, consideration may now be given to some of the adjustments or closing entries which must be made by the accountant in order that the final accounts may present the truest possible view of the events of the period and of the financial position at the end of the period. Only by understanding the mechanics of accounting can a manager thoroughly appreciate the story told by the figures.

It should be borne in mind that the final accounts now under consideration may either take the form of a simple Profit and Loss Account and Balance Sheet for a small business, or may consist of numerous statements dealing with different aspects of the affairs and operations of a large concern. Further, the expression final accounts refers not only to the statements prepared at the year end but also to interim accounts which may be prepared half-yearly, quarterly or monthly according to the needs of the business and of its management. Rarely, if ever, is it sufficient for control purposes to prepare final accounts at yearly intervals only.
The adjustments which will be considered in the following sections comprise: Outstandings, Accruals, Prepayments, Provisions, Reserves, and Valuations.

Strictly speaking the above list covers all the adjustments required except for depreciation, which is considered in a subsequent chapter. It is desirable for actual entries to be made in the accounts; and at the year’s end the auditors will insist on such adjustments being made. In some cases, however, interim accounts may be prepared by the aid of schedules listing the adjustments which are not in fact entered in the accounts.